Saving KiwiSaver: why contributions matter more than fees

KiwiSaver fees have hogged the headlines more than ever over the last year, sparked first by the Financial Markets Authority (FMA) ‘value for money’ crusade in 2020 before culminating in the Ministry of Business, Innovation and Employment (MBIE) default scheme announcement last month.

The regulator, of course, has a duty to monitor fees under its mandate to oversee KiwiSaver (and the broader licensed funds market) while the government itself has had a specific interest to see management fees come down, especially given the allocation of free new customers to the default providers. The writing was on the wall when MBIE’s tender document for default providers came out last year with a 60 per cent weighting to fees - a point not lost on a number of newly appointed providers. The key, though, in a lower-fee world is whether the default providers can still adequately service their new members, but more on this later.

The just-completed default review has squeezed the sticker price for managing a balanced KiwiSaver portfolio to between 0.2 per cent and 0.4 per cent – all without fixed annual member fees. If we compare this with our Aussie neighbours who have over A$3 trillion under management and charging on average 0.7 per cent in management fees, you could say it was an incredible feat.

Announcing the new default scheme terms, Commerce Minister David Clark said: “We’re sending a clear message to KiwiSaver members that the government believes they deserve much better bang for their buck.”